Why Doctors Struggle with Money

This is the second post in our new content series, Doctor Money: A Personal Finance Guide for Physicians. Each week, we work to publish a chapter (more or less) in this book.  I am using our website as the platform to provide this content free to our readers!  However, my ultimate goal is to compile all of the posts in this content series into an e-book (or an old-fashioned paperback) sometime in the future. For now, I am just enjoying the journey, one post at a time!

Last week, we published our inaugural publication for this content series.  This was the formal introduction to the book, and you can find it here!  I suggest you check it out before reading the content below. However, each of these posts works as stand-alone content as well.  This week, we are publishing Chapter 1: The Doctors Dilemma.  I am titling this post, however, Why Doctors Struggle With Money.  That is our Dilemma, after all.  So, without further ado, let’s dive into our next chapter and answer the question, why do doctors struggle with money?

Doctor Money: A Personal Finance Guide for Physicians

Chapter 1: The Doctor’s Dilemma

Becoming a physician is a long and arduous path.  It is not for the faint of heart.  However, given doctor’s high incomes, it is worth it in the end… isn’t it?  

As physicians, we often must enter a lifestyle of dedication and responsibility from an early age.  We grind through a decade (or more) of education and training to ultimately come out the other side with enough grit to tackle a 30-year career (or more).  Our choice of profession remains enticing, given doctors’ relatively high incomes for their work. However, over the past few decades, the incentives to pursue a medical career have become less attractive.  

Unlike many of their peers, individuals pursuing careers in medicine often delay earnings, accumulate debt, postpone retirement savings, and ultimately delay their life to enter the medical profession.  This leads to delayed gratification as many remain trainees for years while their friends and family reach their earning potential well before they do.  Further, following formal training, physicians feel compelled to spend their money, often as a reward for their delayed gratification, and to meet societal expectations of a ‘rich doctor.’  

However, this type of behavior can potentially lead physicians to struggle with money, live paycheck to paycheck, and shackle them to their careers.  This is how the term ‘golden handcuffs’ was coined.  We are shackled to our high incomes to afford our lifestyle.  This can delay retirement and promote burnout. This, my friends, is our dilemma. 

How can physicians simultaneously grow their income without hindering financial prosperity?  Why do so many end up in this predicament?  Let’s explore some of the primary reasons why doctors struggle with money and how this ultimately leads to the doctor’s dilemma.

Medical Education is Long

First and foremost, as I touched on above, medical education is long.  The decision to become a doctor should not be made lightly. Most who pursue careers in medicine require a sense of foresight.  In the United States (U.S.), an individual must graduate from college with a competitive grade point average (GPA), pass the MCAT, complete four years of medical school, and then successfully match into a residency program.  After entering their post-graduate years (PGY), they often must complete between 3-7 years (or more) of residency and fellowship training, where they are commonly paid less than the average household income.  For many, delays or ‘gap years’ can create an even lengthier journey.

In total, including college, the average physician is often subjected to at least a decade’s worth of education and formalized training; for some subspecialists, this can be closer to 14-18 years.  This suggests that many physicians are in their early to mid-thirties when they finally reach their earning potential. However, individuals choosing to start their careers after high school (age 18) or after a four-year college (age 21) have close to a decade’s worth of savings and investments that many physicians do not.  All the while, many in formalized medical education and training are accumulating student loans, interest on their debt, and failing to prioritize retirement.

This brings me to my next point…

Medical Education is Expensive

The decision to pursue a career in medicine is not only long but also expensive. Further, its cost only increases, sometimes outpacing inflation. Let’s quickly examine the data to back up this claim.

First, let’s look at the cost of a four-year college. Here are some takeaways from research published on the Education Data Initiative, largely taken from the National Center for Education Statistics (NCES) for 2023:

• The average cost of college has more than doubled in the 21st century, with an annual growth rate of 2% over the past ten years 
• Average in-state tuition for a four-year college education is $26,027 per year
• Average private, non-profit university student spends nearly $55,840 per academic year living on campus, $38,768 in tuition and fees alone.
• Considering student loan interest and loss of income during those years, the ultimate cost of a bachelor’s degree can exceed $500,000!

Now, let’s have a look at the data for medical school costs in the United States:

• The cost of medical school has risen by about 2.5% annually since 2014
• Average total cost of medical school is $235,827
• Average yearly cost of medical school is $58,968
• Average cost of public medical school education is $209,932
• Average cost of private medical school education is $261,812
• Total costs vary by institution type and location, ranging from $161,972 (in-state, public school) to $264,704 (out-of-state, private school)

Finally, according to the Association of American Medical Colleges (AAMC) Medical Student Education: Debt, Costs, and Loan Repayment Fact Card for the Class of 2023:

• 70% of graduates had education debt
  • 73% of students attending public educations
  • 67% of student attending private educations
• Mean education debt of those indebted was $206,924
  • $197,843 for public school graduates
  • $222,381 for private school graduates
• 28% of all graduates had undergraduate (college) debts, with a median of $27,000

What is the takeaway here?  Medical education is expensive.  A portion of those attending medical school have already accumulated some debt from their undergraduate training.  Further, most graduating physicians accumulate six-figure debts.  This debt then proceeds to accumulate interest as they enter years of formal educational training, where their average income (in 2022) is approximately $60,000, according to the American Medical Association (AMA), well below the median U.S. household income of $74,580 according to the United States Census Bureau.  

One last thought to leave you with here.  According to StudentAid.gov, Direct Unsubsidized loans for graduate or professional training have a fixed interest rate (currently in 2024) of 7.05%, with Direct PLUS loans carrying a fixed rate of 8.05%.  Here is what an interest rate of 7.05% looks like on an average debt of $206,924 without any payments over three years (duration of average residency):

As you can see, throughout a three-year residency, without any loan payments, a student loan debt of $206,924 at a 7.05% interest rate would accumulate nearly $46,922.32 by the end of post-graduate training, totaling nearly $253,846.32.  Of note, the blue line represents an interest of 8.05%, akin to current Direct PLUS loan fixed rates.  

Take home point… medical education is expensive, and for future students, it is likely to only get worse.  

Delayed Gratification Has a Price

Why does the length and cost of formal medical education matter?  It matters because the duration of training, as well as the cost, take a financial and emotional toll as well.  Consider this a less tangible form of interest…

While medical students and trainees work towards their ultimate goal of becoming attending physicians, they watch the rest of the world carry out their lives. Their friends are climbing the management ladder, having children, buying cars, investing, and building their nest eggs. All the while, future physicians remain fixated on their graduation goals, as they should be!

However, as they emerge from this decades-long hiatus, fixated on nothing but their immediate lives and education, they are thrust back into society.  Fortunately, they are now well reimbursed, but understanding how to safely manage an income that likely quadruples (or more) following their first employment can prove difficult.  Many feel societal expectations to have a home and car befitting such a successful individual.  All that pent-up financial frustration comes bursting forth, leading many to feel they are ‘owed’ so much.  

Akin to the ‘professional athlete pitfall,’ they purchase large houses, upgrade their cars, send their children to private schools, etc.  All the while navigating the management of their medical education debt while keeping their household afloat.  This leads to financial pressures, income dependency, and burnout.  Though our profession is competitively compensated, the delayed gratification and patience required come with a hefty price.  

Physicians Receive No Formal Financial Education

The next reason why doctors struggle with money should not come as a shock.  Physicians receive no formal financial education.  There are rare exceptions, including medical students who took an alternative path in their education and pursued degrees in economics, accounting, or finance. However, for many physicians, most of our formalized education revolved around biology, chemistry, or physics.  

As we segue from undergraduate training to formal medical education and beyond, most of what we learn about personal finance comes from our own experience or the advice of (hopefully) well-intentioned mentors, friends, or parents.  

Though I would be an advocate for formalized personal financial education in modern medical curricula, it remains essentially non-existent.  This is why platforms like The White Coat Investor and The Motivated M.D. have succeeded in the physician finance niche.  There is a demand for this instruction, and more and more physicians are turning to the Internet for guidance.  

The lack of formal financial education for physicians is counterintuitive. During the years when wealth accumulation is most critical, physicians are rightfully fixated on their studies and training. Eventually, they emerge from this chapter of their lives into their professional careers, carrying colossal student loans and left to navigate a high income without a clear understanding of what expenses take priority. We are set up for failure.  

Self-education Can Be Overwhelming

The final reason why doctors struggle with money largely has to do with time.  As physicians venture into their careers, they are armed with their high incomes.  This affords physicians the ability to make some mistakes without financial catastrophe.  Our high incomes often become our financial’ superpower.’  

However, juggling a full clinical schedule, a relationship or marriage, and parenthood is time-consuming enough.  Challenging physicians to find the time to self-educate about their finances between their clinical burdens, administrative tasks, and social lives can prove near impossible.  

Though medical professionals are well acquainted with the art of studying, asking a thirty-year-old professional to bury their nose in a book ‘like the good old days’ is comical at best. Unfortunately, this form of self-education is critical to forming healthy financial habits and avoiding the pitfalls that so many others stumble into.  

Starting can be overwhelming.  Believe me, I know.  When you are already overwhelmed by long work hours, charting expectations, and extracurriculars, feeling the need to learn the nuances of your finances becomes nothing but a chore.  A chore that so many fail to prioritize until they are overwhelmed by life in general. Please do not wait until an emergency arises.  Start educating yourself now. 

Why Doctors Struggle with Money

So, why do doctors struggle with money?  

They struggle for a multitude of reasons, but as I outlined above, they primarily stem from entering a profession that requires lengthy education. This education requires our utmost attention, often forcing individuals to neglect their financial well-being.  

Doctors struggle with money because their education is expensive. As the cited data suggests, medical school is expensive and costs more each year. The average medical student graduates with over $200,000 in medical education debt, not including undergraduate loans.  

Doctors struggle with money because, at the height of their debt accrual, they transition to a time when they are paid less than the median household income. At the same time, interest on their six-figure debt continues to build.  Over a normal three-year residency, these debts can balloon another $50,000 at current graduate loan interest rates.

Doctors struggle with money because delayed gratification can carry a hefty price.  This often leaves physicians feeling entitled to certain lifestyle expectations despite their lack of a baseline understanding of financial sustainability and priority placement.  

Doctors struggle with money because they receive no formal personal financial education and are left to navigate their highly variable incomes themselves. True, there are a myriad of tools available in today’s high-tech world, but digesting these resources still requires time, which is scarce for modern medical professionals.

Doctors struggle with money because finding the time to pursue another form of education after completing their professional journey can feel overwhelming.  Just when we see the ‘light at the end of the tunnel,’ we are struck with a lack of understanding and a realization of the complexities of our finances.  

This is the doctor’s dilemma.  

Why I Am Writing This Book

This is why I am writing this book.  Physicians deserve better.  Though I do not claim to know it all, I am passionate about physician finance and its application to all physicians looking to build a solid financial foundation.  From setting realistic goals to budget building and beyond, there are several practical steps I believe all physicians should take to understand their income, protect their assets, and guard against the unexpected.  You will find it all here so you can break free of the doctor stereotype and master your finances.  

Join us next week for Doctor Money: A Personal Finance Guide for Physicians.  We will tackle Chapter 2: Set Realistic Goals.  As always, thank you for visiting the site, and I look forward to seeing you next week! As always…

The Motivated M.D.

Disclaimer and Limit of Liability

This post (and hopefully its eventual publication) is designed strictly to inform and entertain. I am in no way, shape, or form a financial professional, nor does this site provide formalized financial advice. I do not provide nor engage in rendering legal, accounting, or other professional services. If legal advice or other professional/expert assistance is required, then the services of an accredited professional should be sought. I am not liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

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